The saga of the expanded Minimum Offer Price Rule (MOPR) in PJM Interconnection continues. Put in place by previous FERC leadership in December 2019, the expanded MOPR threatened to exclude advanced energy technologies supported by state and local policies from the PJM capacity market, artificially increasing capacity prices in the market, increasing costs to consumers, and derailing progress in meeting the clean energy goals of state and local governments and consumers. Responding to unambiguous signals from the new FERC leadership appointed by the Biden Administration that the expanded MOPR policy must go, PJM stakeholders and its Board of Managers voted this month to send FERC a proposal that will roll back the expanded MOPR. That could mean the beginning of the end for MOPR – and the start of broader market reform to support the transition to 100% advanced energy.To recap the MOPR story thus far: The expanded MOPR – ordered by FERC in December 2019, and later put in place by PJM in 2020 and applied for the first in the auction that was held in May 2021 – applied to any capacity resource receiving a “State Subsidy,” a term broadly defined to include revenues received under a Renewable Portfolio Standard, Zero Emissions Standard, or other government policies or programs outside of the PJM markets that provides revenues to a resource. When applied, the expanded MOPR requires a resource to offer to sell into the market at a predetermined MOPR floor price that may be higher than its actual costs. That could artificially push the resource’s offer above the market clearing price, excluding it from payment for contributing to the PJM region’s capacity needs (see figure below).

Unfairly excluding advanced energy resources supported by state policies from the PJM capacity market creates significant cost risks for consumers because the capacity those resources provide, and that consumers paid for, is not counted toward the region’s capacity needs. Instead, the market procures, and consumers pay again, for additional capacity – often fossil fuel resources – that are not actually needed. These added costs also pose broader threats to the state policies that support cleaner resources. 

PJM’s Proposal to Replace the Expanded MOPR

With support from AEE and other clean energy voices, current FERC Chair Rich Glick and Commissioner Allison Clements have made clear that they view these impacts of the expanded MOPR as unjust and unreasonable and inconsistent with FERC’s statutory responsibilities. Reacting to this emerging FERC majority and a March 23 Technical Conference held by FERC on the expanded MOPR, PJM moved quickly to develop a replacement. After nearly three months of intense discussions and debate, PJM stakeholders and the PJM Board of Managers gave the green light to a proposal that, if approved by FERC, will remove not only the expanded MOPR, but also the pre-existing MOPR rules that applied only to new natural gas-fired generating technologies.

In their place, PJM is proposing a much narrower MOPR that will generally apply in two circumstances: (1) where a resource receives payments from a state policy that are conditioned on the resource clearing in the PJM capacity auction (“Conditioned State Support”), and (2) where, after investigation by PJM and the Independent Market Monitor, it is determined that a capacity market seller has buyer-side market power and their market offer is an exercise of that market power (i.e., is intended to suppress prices). PJM plans to initially screen for these circumstances through an attestation process. All market sellers will be required to provide two attestations: first, as to whether or not they are receiving Conditioned State Support, and second, confirming that they are not offering their resources with the intent of exercising buyer-side market power or deliberately lowering market prices. If a seller fails to provide the attestation, or attests they are receiving Conditioned State Support, a MOPR will automatically apply.

Since advanced energy technologies like wind, solar, and energy storage are often supported by state clean energy and climate policies, the first circumstance in PJM’s proposal is most relevant to these technologies. PJM’s proposal would define “Conditioned State Support” to encompass any financial support that a state provides to a resource only if that resource clears (i.e., is selected) in a capacity market auction. The condition could be either a requirement in legislation or regulations that specifies that the resource must clear in the PJM capacity auction, or specific directives as to the price level at which the resource must offer in that auction. PJM proposes to specify in the rules filed with FERC that policies and programs like Renewable Energy Credits (RECs), Zero Emissions Credits (ZECs), the Regional Greenhouse Gas Initiative (RGGI), economic development programs, and tax incentives, among others, will not be subject to MOPR absent an express condition requiring clearing. PJM’s proposed definition of “Conditioned State Support” closely mirrors the Supreme Court’s decision in Hughes v. Talen Energy Marketing, which held that a Maryland law conditioning payment of a subsidy on the resource clearing in the PJM capacity market was unlawful because it disregarded FERC’s authority to set wholesale capacity rates.  

Unlike the expanded MOPR and its predecessor, FERC, rather than PJM, would make the ultimate call as to whether MOPR will be applied to a particular resource supported by a state policy. If PJM determines (with advice and input from the IMM) that a resource is receiving Conditioned State Support, it will make a filing with FERC stating its intent to apply a MOPR, giving FERC an opportunity to reject that filing if it disagrees with PJM’s determination. In addition, if any parties believe a resource is receiving Conditioned State Support, they can file a complaint with FERC asking the agency to require PJM to apply MOPR. 

The second circumstance where PJM’s proposal would apply a MOPR involves instances where it is determined, based on investigation, that a market seller has both the incentive and the ability to exercise buyer-side market power; that is, to lower capacity market prices in a way that benefits them in their role as buyers – a vertically integrated utility, for instance, that is both bidding its power plants into the capacity market and paying for capacity to meet its customers’ needs. PJM, with the advice and input of the IMM, will conduct a fact-specific investigation to determine whether market sellers have such intent and ability, and are actually offering a capacity resource in a way that seeks to exercise buyer-side market power to lower market prices. Most sellers of advanced energy resources in the PJM capacity market are not load-serving entities that are also subject to charges for the purchase of capacity, and therefore are generally unlikely to be found to have incentive or ability to lower market prices under PJM’s proposal.

From MOPR to Market Reform

PJM plans to file its proposal with FERC by the end of July, and is expected to ask FERC to rule on the proposal in September. This would allow the expanded MOPR to be eliminated and the proposed narrower MOPR to be put in place by December, when PJM will hold the capacity auction for 2023-2024.

One obstacle to this schedule: it is unclear whether FERC will have a full roster of five Commissioners as of September. Commissioner Chatterjee recently stated that the Commission’s July Open Meeting would “most likely” be his last, leading to speculation that he will soon leave his post. The Biden Administration has yet to nominate a new Commissioner to replace him, and it is unlikely that a nominee named in the next several weeks could be confirmed by the Senate by September. That leaves the possibility of a 2-2 split. Chair Glick and Commissioners Clements can be expected to favor approving PJM’s proposal, given that they have both unequivocally indicated they oppose the expanded MOPR. Commissioner James Danly is likely to oppose this proposal, given his support for the expanded MOPR in prior orders and his continued position that some form of broadly applicable MOPR is legally required. Commissioner Mark Christie may be the wild card; while he has strongly favored the rights of states to set their own policies free from interference from FERC, he has also voiced concern that state policies that subsidize particular generation resources for their attributes harm customers and markets. 

FERC’s decision on PJM’s proposal will also have ripple effects for other RTOs. ISO New England has launched an effort with stakeholders to remove its version of the expanded MOPR from its market rules. Similarly, New York ISO staff has proposed to exempt new solar, wind, storage, and demand response resources from its version of MOPR. 

More broadly, rolling back the expanded MOPR once and for all would clear the way for consideration of broader reforms to the capacity, energy, and ancillary services markets that are needed to align them with state and customer clean energy goals and meet the needs of an increasingly decarbonized power grid. PJM and ISO-NE have both established ongoing workshops and procedures to consider these reforms. AEE is engaging in both RTOs to ensure that these market reforms move forward and do not stall after the urgency of MOPR subsides, and has developed a set of principles for reforming capacity markets to meet clean energy goals and support the grid of the future.       

Download AEE’s “Principles for Reforming Capacity Markets to Meet State and Customer Clean Energy Goals” by clicking below.